The Big Three? Quit Your Panhandling

Thu, 13 Nov 2008 12:19:29 +0000

Continuing the series, I could spend a lot of time trying to articulate why the Big Three automakers should stop receiving federal funds to resolve or reduce their financial troubles. But I wouldn't be able to say it any better than Declan McCullagh in his column yesterday.

There are two misconceptions that are well addressed in the column. First, saying "the U.S. auto industry" is not the same as saying "The Big Three" automakers. As McCullagh points out, there are plenty of people employed in the U.S. auto industry who work for foreign car companies operating plants in the U.S. (My Subaru was team crafted in Indiana a decade ago.) Second, and more importantly, the absence of a bailout means bankruptcy, not the shuttering of factories. In bankruptcy, the company is reorganized. As McCullagh explains:

Contrary to popular belief, that will not mean the end of a company such as GM, which has indicated it may run out of cash by the end of this year. Under Chapter 11, a bankruptcy judge will weigh the different interests of GM's creditors, labor unions, shareholders, and so on, and the resulting company will emerge leaner and stronger. Many current customers of United Airlines, Texaco, Global Crossing, and Pacific Gas and Electric probably don't even know that those companies once filed for Chapter 11.

Chapter 11 also would let a judge alter gold-plated union contracts and benefits that have hamstrung the Big Three and crippled their ability to compete against Japanese and European car makers. Toyota, Honda, and other non-Big Three manufacturers that employ over 100,000 Americans, mostly in right-to-work states, have shown that they can make money building cars in the United States. The best way to keep U.S. auto workers employed in the future -- tens of thousands already have lost their jobs -- is to make it profitable to keep them on the payroll.

Why should the taxpayer have to provide funds to spare GM's shareholders, creditors, workers, and retirees the reductions in what they've been promised that are required to return the company to profitability? GM didn't pay for insurance, so why can it file a claim? And if the taxpayer were to provide funds to subsidize auto production, why should those funds be allocated on the basis of "who made the worst business decisions in the past" rather than "who will provide the taxpayer with the best return on investment?"

Read the whole thing.